Since the onset of the Great Recession, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be...

This study explores empirically the price dynamics within two distinct market institutions - a double oral auction, which resembles modern asset markets, and a bilateral exchange market, which represents markets that have existed for centuries. To provide a theoretical basis to our...

An equilibrium model of financial crises driven by Irving Fisher's financial amplification mechanism features a pecuniary externality, because private agents do not internalize how the price of assets used for collateral respond to collective borrowing decisions, particularly when binding...

Mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers' lack of knowledge and experience. We study the compensation that borrowers pay to mortgage brokers for assistance from application to closing. Two findings support the...

Commentators have raised concerns about the empty creditor problem that arises when a debtholder has obtained insurance against default but otherwise retains control rights in and outside bankruptcy. We analyze this problem from an ex-ante and ex-post perspective in a formal model of debt with...

We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset from EU countries over time, we construct a measure of "deep" financial integration at the regional level based on foreign ownership at the firm...

An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to 'overshoot' equilibrium when an asset bubble bursts--threatening widespread insolvency and what Richard Koo calls a 'balance sheet recession'

Adverse shocks to stock markets propagate across the world, with a jump in one region of the world seemingly causing an increase in the likelihood of a different jump in another region of the world. To capture this effect mathematically, we introduce a model for asset return dynamics with a...

We build a model of the financial sector to explain why adverse asset shocks in good economic times lead to a sudden drying up of liquidity. Financial firms raise short-term debt in order to finance asset purchases. When asset fundamentals worsen, debt induces firms to risk-shift; this limits...